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Advanced Roofing, Inc. and Affiliates
<br />Notes to Consolidated Financial Statements
<br />Note 8. Commitments and Contingencies
<br />Operating leases: The Company leases various office and warehouse equipment under noncancelable
<br />operating leases expiring in various years through December 2018. Total rental expense for the years
<br />ended December 31, 2015 and 2014, was $347,033 and $317,836, respectively. The approximate future
<br />minimum payments under these lease agreements are due as follows as of December 31, 2015:
<br />Years ending December 31:
<br />2016
<br />2017
<br />2018
<br />Amount
<br />$ 320,067
<br />183,724
<br />68,471
<br />$ 572,262
<br />Contract claims: The Company is a defendant in certain claims for damages associated with work on a
<br />certain job. The Company carries insurance coverage for such claims, which provides for a deductible
<br />between $5,000 and $20,000 per each occurrence as of December 31, 2015, and between $10,000 and
<br />$20,000 per each occurrence as of December 31, 2014, to a maximum of $2,000,000. The Company also
<br />carries excess liability insurance of $10,000,000 as of December 31, 2015 and 2014. The Company has
<br />accrued for potential losses up to the amount of the policy deductible per occurrence and management
<br />believes it has adequate insurance coverage to cover any claim in excess of the maximum.
<br />Insurance: The Company's general liability policy has a deductible per occurrence of $20,000 as of
<br />December 31, 2015 and 2014, with a minimum annual base premium and an annual aggregate stop loss.
<br />The Company's workers' compensation policy has a total annual deductible for all losses of
<br />approximately $1,000,000 as of December 31, 2015 and 2014. The Company has recorded a claim
<br />reserve liability for all policies in the amount of $1,341,146 and $1,634,953, respectively, of which
<br />$1,241,146 and $1,534,953, respectively, is included in accrued expenses and $100,000 is included in
<br />other liabilities as of December 31, 2015 and 2014. These amounts represent management's best
<br />estimate of the total liability to be incurred for all open periods through December 31, 2015.
<br />The Company has issued a letter of credit totaling approximately $400,000 which expires August 2016,
<br />as collateral to the insurance companies (see Note 6).
<br />Note 9. Employee Benefit Plan
<br />The Company has a profit-sharing 401(k) plan (the Plan) that permits voluntary contributions by eligible
<br />employees. The Company determines annually what match percentage will be used, as well as the
<br />maximum match amount. The Plan also allows for additional profit-sharing contributions by the Company.
<br />The Company's match and related 401(k) expenses for the years ended December 31, 2015 and 2014
<br />was $92,033 and $95,310, respectively. The Company made no profit-sharing contributions during 2015
<br />and 2014.
<br />Note 10. Related Party Transactions
<br />The Company has a note payable to a stockholder of $767,460 as of December 31, 2015 and 2014,
<br />bearing interest at a rate of 5%. The loan is subordinated to the line of credit and is not expected to be
<br />repaid in the next twelve months. Therefore, the stockholder loan is classified as noncurrent in the
<br />consolidated balance sheets as of December 31, 2015 and 2014. Interest expense related to the
<br />stockholder loan was $38,905 for the years ended December 31, 2015 and 2014.
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